PHOTO: Desert Valley Hospital, July 2021

Victorville, CA - More details have emerged in the multi-million dollar lawsuit against Prime Healthcare, its Chief Executive Officer, Dr. Prem Reddy and cardiologist Dr. Siva Arunasalam. A payout of $37.5 million dollars to the federal government and the state of California has been decided after a whistleblower lawsuit filed by Phillips & Cohen LLP that alleged the hospital chain paid kickbacks to the cardiologist, buying his practice and surgical center for far more than they were worth.

The law firm who partnered with Cotchett Pitre & McCarthy (CPM) to litigate the case say that this "appears to be the largest settlement of a case alleging kickbacks paid by a hospital chain to a single physician." Prime Healthcare operates one of the biggest hospital systems in the nation.

Governments' funds had been recovered through litigation pursued by the whistleblower and his attorneys as allowed by the federal False Claims Act and the California False Claims Act. The government investigated the case but did not take it over, or "intervene," by the deadline the court had set.

According to the complaint, Prime and its affiliates:

  • Bought Dr. Siva Arunasalam's cardiology business, High Desert Heart Institute (HDHI), and his surgery center in Victorville, California, in 2015 for an amount that was at least three times their total fair market value.
  • Paid Dr. Arunasalam a "steeply inflated" salary in exchange for referring patients to Prime Healthcare's Desert Valley Hospital in Victorville and shutting down his independent practice and surgery center.
  • Submitted falsified invoices to government healthcare plans to claim higher prices for implantable medical devices such as pacemakers than Prime Healthcare had actually paid. Higher prices meant higher reimbursement for Prime Healthcare.

"Doctors are permitted to sell their practices to hospitals and other competitors, but the payment must be for fair market value," said Edward H. Arens, a whistleblower attorney and partner at Phillips & Cohen in its San Francisco office. "Throwing inflated sums of money at doctors for their medical practices and salaries as a hidden way to get patient referrals isn't allowed."

The complaint claims that both Dr. Reddy and the cardiologist, Dr. Arunasalam "knew and intended that [Dr. Arunasalam] would receive an outsized salary and above-market payment for his practices in exchange for referring his patients to [Desert Valley Hospital] where they would receive the same services at higher prices."

"Fraud drives up healthcare costs for all of us," said Justin T. Berger, a partner at CPM. "Whistleblowers are a powerful check on corporate greed and runaway healthcare spending. This settlement exemplifies the power and importance of whistleblowers in our civil justice system."

The whistleblower lawsuit alleges Prime, Dr. Reddy and Dr. Arunasalam violated the Stark Lawthe Anti-Kickback Statute, the US False Claims Act and the California False Claims Act. Dr. Reddy currently serves as the board chairman and president of Prime Healthcare as well as its founder and chief executive officer.

Out of the total settlement, Prime must pay $33,725,000, Dr. Reddy will pay $1,775,000 and Dr. Arunasalam will pay $2 million over an extended time.

The whistleblower, Martin Mansukhani, had been a regional chief financial officer for Prime Healthcare between 2012 to 2017. Phillips & Cohen filed a whistleblower-type lawsuit on his behalf in 2018 in federal district court in Riverside, California.

The official release from law firm says that Mr. Mansukhani had expressed concerns to his upper management about asset purchase arrangements and the employment agreement, however, he had been ignored.

According to further information that had been provided. Prime Healthcare basically carried out the alleged scheme involving reimbursement for implantable devices. From there, Prime Healthcare centralized its billing and collections using a small team of employees.

"We allege that one office became a 'falsification factory' that systematically altered invoices and purchase orders to make it appear that Prime Healthcare spent more on implants than it really did," said Molly Knobler, a whistleblower attorney at Phillips & Cohen.

Mr. Mansukhani said that the outcome would not have been possible without the team that he had on his side.

In a statement to, Prime Healthcare pointed out that "allegations did not involve patient care, but instead related to the valuation of a physician practice and the appropriate documentation for a limited number of implant claims totaling approximately $200,000." The company says that when these issues had been identified, the organization engaged in an extensive, internal review that involved the Department of Justice.  

Prime Healthcare tells that they want to make sure they have continued transparency, as a result, they have agreed to amend their Corporate Integrity Agreement (“CIA”) to include testing on physician compensation arrangements as part of the settlement. Prime Healthcare says that "CIAs are standard monitoring agreements in the healthcare industry and [that they have] operated successfully under a CIA since 2018 and remains in full compliance." 

The chief legal officer for Prime Healthcare, Joel Richlin, said in a statement that  “our mission is to save hospitals and ensure compassionate, quality care is available in every community, which is now more important than ever before. As a physician-led health system nationally recognized for clinical excellence, Prime Healthcare always honors the integrity and independence of the physician-patient relationship. We are well positioned for future growth and will continue executing on our strategic plan, remaining steadfast in providing excellent and compassionate care to all patients during this unprecedented time.”

It should be noted that when whistleblowers pursue qui tam cases on their own, they are entitled under the false claims laws to 25% to 30% of the federal recovery and 25% to 50% of California's. Mr. Mansukhani will receive 28% and 44%, respectively, of the recoveries.